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Apache’s Stock Drivers and Key Management Objectives

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Apache’s stock price

As we saw in the previous part, Apache’s (APA) stock price has fallen significantly this year, driven by a dismal commodity price environment. Crude oil prices have fallen ~62% from their June 2014 peak of $107 per barrel.

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Analysts’ estimates

The above graph notes Apache’s forward high, low, and median target prices. Analysts’ consensus target price of $55.7 indicates an upside of about 10% for Apache compared to current levels over the next 12 months.

Key management discussions and objectives

In its 3Q15 earnings release, Apache’s CEO (chief executive officer) and president John J. Christmann noted that Apache continues to show resilience in these trying times. He stressed Apache’s 3Q15 production volumes coming in higher than expected despite a lower capital program, indicating Apache’s higher quality of assets.

Christmann said, “As we turn to 2016, prudent capital allocation will continue to be our primary focus as we strive to spend within cash flows, enhance our returns and grow value for our shareholders. Longer-term, we have great confidence in the potential inherent in our portfolio. Our extensive, high-quality position in North American resource plays will continue to be the driver of our long-term growth.”

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Christmann continued, “Our recent exploration successes in the North Sea and Egypt demonstrate the quality of our international assets and underpin their potential to sustain free cash flows for an extended period of time. It has been an extensive effort, and there is still more to do, but Apache is well-positioned for the future.”

Key efforts by Apache align with current price scenario

At $762 million, Apache’s 3Q15 capital expenditure was down 70% compared to 3Q14. Compared to 2Q15, capex was 16% lower. For fiscal 2015, Apache plans to spend $3.8 billion in capex. This is ~65% lower than its fiscal 2014 capex.

Many oil and gas companies slashed their 2015 capex in response to weakness in crude oil prices. ConocoPhillips (COP) and Anadarko Petroleum (APC) slashed their capex by ~33% versus 2014. Marathon Oil (MRO) announced a capex reduction of ~40% versus 2014. All these companies make up ~9% of the Energy Select Sector SPDR ETF (XLE).

Apart from capex reduction, Apache has also been making efforts to reduce its rig counts. According to a presentation released on November 10, 2015, Apache has cut 86 rigs worldwide since September 2014.

Apache has also been focusing on reducing its costs. Per the presentation, average well costs in North America are down 30% compared to November 2014. Gross general and administrative costs were down 26% in 3Q15 compared to 3Q14, while lease operation expenses per boe (barrel of oil equivalent) were down 18% in 3Q15 compared to 3Q14.

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